This case is about Philip Morris International (PMI), a leading global cigarette and tobacco company. It discusses the company’s strategy to venture into the ‘Heat but not Burn’ (HnB) tobacco products category. PMI launched iQOS in 2014 in Nagoya, Japan, and Milan, Italy, as a pilot project. iQOS was a rechargeable electronic device that heated tubes of tobacco called HeatSticks, in contrast to the conventional cigarettes in which tobacco was burned. The case highlights the dangers of tobacco consumption and its effect on human health. It describes in detail PMI’s strategy to develop and commercialize what it called Reduced-Risk Products (RRPs). iQOS was the first of the four platforms of RRPs developed by PMI. The case also examines the challenges faced by the company. It ends with a discussion on whether PMI would be able to stay ahead of its competitors or not.

Description

In 2014, PMI, a leading global cigarette and tobacco company headquartered in New York, the US, launched iQOS in Nagoya, Japan, and Milan, Italy, as a pilot project. iQOS was a rechargeable electronic device that heated tubes of tobacco called HeatSticks, as opposed to the burning of tobacco that took place in conventional cigarettes. These HeatSticks resembled a cigarette cut into half. Japan was chosen as the main market for the pilot project, as global tobacco companies perceived Japan as a perfect test ground for ‘Heat but not Burn’ (HnB) tobacco products, since e-cigarettes, which used nicotine-laced liquid, were not allowed under the country’s pharmaceutical regulations.

The declining trend in smoking in the developed countries had put the tobacco industry under serious pressure in the last decade. Global cigarette consumption was annually dropping by 2-2.5%. In an effort to reinvent itself, Philip Morris, maker of the popular Marlboro brand, decided to expand the sales of what it called Reduced-Risk Products (RRPs) to 35 countries by 2017. The launch of iQOS was the first step toward this objective. Compared to cigarettes, Heat Sticks also had the advantage of countries taxing them at a lower rate. “We are more confident than ever that these products have the potential to fundamentally transform our business,”4 said Andre Calantzopoulos (Calantzopoulos), CEO and Director of PMI.